Women on board, firm financial performance and agency costs

Abstract

This study investigates the link between female board directors and company financial performance and agency costs in Sri Lanka's publicly listed companies. In order to investigate the impact of board gender diversity on firm financial performance, a dynamic panel generalised method of moment estimation is applied. Three variables are used as proxies for gender diversity of the board of directors, namely the percentage of women on the board, a dichotomous dummy and the Blau index. A Tobit model with endogenous regressors is used to investigate the impact of female board members on agency cost, using growth opportunities as a measure of agency cost. After controlling for size, industry and other corporate governance measures, this study finds a significant negative relationship between the proportion of women on boards and firm value along with an increase in company agency cost. This evidence provides insights for governments and academic institutions in their efforts to provide resources that will help enhance women's leadership skills.

Female in top management and firm performance nexus: Empirical evidence from Ghana

“…The argument for this is that bigger firms may be too tough for females. In another study in Sri Lanka by Wellalage and Locke (2013), it is realized that females' representation on top management has significant negative relationship with firm value. They attribute the negative relationship to an agency cost imposed by diversity in board.…”

“…In spite of the arguments in favour of female inclusion in top management of organisations, empirical studies have been very mixed in their findings on the relationship between females in top management and firm performance. While a host of studies have concluded that female in top management results in high firm performance, (see: Dezsö & Ross, 2012;Reinert et al, 2016;Faccio et al, 2016;Wu et al, 2017;Moreno-Gómez et al, 2018), other studies have established a negative relationship between female in top management and firm performance (see: Darmadi, 2013;Ryan & Haslam, 2005;Ujunwa, 2012;Wellalage & Locke, 2013). Apart from these two groups of contrary findings, other studies have findings that suggest that females in top management have no influence on firm performance (see: Cabrera-Fernández et al, 2016;Pletzer et al, 2015;Ming & Eam, 2016;Marinova et al, 2016).…”

Is Board Gender Diversity a Driver of CEO Compensation? : Examining the Leadership Style of Institutional Women Directors

“…Agency approach also argues that females on boards might monitor management team (Carter, D'Souza, Simkins, & Simpson, 2010), reducing information asymmetries and agency costs (Wellalage & Locke, 2013 (Byrnes, Miller, & Schafer, 1999), bring different perspectives to the boardroom, and develop a more trusting leadership style than men (Trinidad & Normore, 2005). Therefore, the presence of female directors on boards reduces opportunistic behaviors and exercises greater control over CEO pay.…”

Does the Gender of CEOs and CFOs Affect Earnings Management?

“…They are characterized by being obedient and sensitive. These different traits have resulted in different types of response to corporate policy and regulation by women and men 4 . The existence of CEOs is crucial in corporate governance, since they are in charge of coordinating all the activities of boards in firms.…”